The former Domtar pulp mill in Baileyville was bought in 2010 by Grand Investment Corp. of China and Taiwan for $64 million and renamed Woodland Pulp LLC. The new owners are investing $ 12 million to convert the oil powered facility to natural gas.

BAILEYVILLE, Maine — A $12 million oil-to-natural gas conversion project at Woodland Pulp LLC, formerly Domtar, was given a big boost this week when a legislative committee approved the mill’s plans to proceed under state rather than federal regulation.

This emergency change will need to be approved by the full Legislature.

Scott Beal, mill spokesman, said converting to natural gas will save millions in fuel costs for the mill.

“Last year, we used 10.3 million gallons of No. 6 oil,” Beal said. “Because the price fluctuates, we cannot precisely say how much we will save but we estimate that there will be a one-year payback of this investment in avoided costs.”

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He said the mill, which makes hardwood pulp used in manufacturing paper, will be linking with the Maritimes and Northeast Pipeline that runs through Maine about 4½ miles north of the mill.

“We will tie into their line and run it to the mill,” Beal said.

Maritimes and Northeast’s natural gas transmission main originates at Sable Island in Nova Scotia and crosses New Brunswick into Maine, continuing through to Westbrook where it interconnects with the Portland Natural Gas Transmission System. The pipeline crosses the border at the St. Croix River north of the Baileyville pulp mill and was installed in 2000.

In April, the Finance Authority of Maine approved commercial loan insurance on a $5.2 million Machias Savings Bank loan which partly finances the mill project.

“You can quickly see the economic benefits of this,” Beal said. “This is something we wanted to do for a long, long time but either the previous owners didn’t have the capital or the economy was not in a good place.”

Beal said the new owners of the mill, which was purchased last year from Montreal-based Domtar by International Grand Investment Corp. of China and Taiwan for $64 million, have a strong interest in energy efficiency.

Beal said the conversion should be completed by the end of 2011 and he praised Washington County’s delegation in Augusta for helping to get the utility regulatory approval this week through the Legislature’s Energy, Utilities and Technology Committee. It is expected to soon get approved by the full Legislature, according to Maine Senate President Kevin Raye, R-Perry.

The legislation will allow the mill to be regulated by the Maine Public Utilities Commission, rather than federal agencies, and allow the project to be completed a year earlier than otherwise.

Beal said the legislative action filled a statutory gap. Usually, the Maine PUC can only regulate utilities and not private companies. With the change, the PUC now will regulate the project, which ensures the mill’s future growth.

“Woodland Pulp LLC employs 310 people at the mill, and has an enormously important spinoff effect throughout the region,” Raye said. “The mill’s future viability will be greatly enhanced by this action.”

A public hearing on the project will be held at 6 p.m. Tuesday, May 24, at the mill’s administration building to answer any questions the public may have.

CORRECTION:

Because of erroneous information provided to the BDN, an earlier version of this article incorrectly stated that the emergency action was that the mill has been designated as a Pine Tree Zone.